Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.

Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

සිංහල පරිවර්තනය
Submit Post
Submit Post
Market Place

Add an ad

View all ads

Latest topics

» PLC Script dividend @ Rs 14.20.. please mention suggestions...
by ddrperera Yesterday at 4:45 pm

» srilanka regulator charges two over Manipulation
by Capton KIng Cool Yesterday at 3:29 pm

» Dankotuwa pocelin launches-ivory -grade
by Capton KIng Cool Yesterday at 3:23 pm

» Dankotuwa pocelin launches-ivory -grade
by Capton KIng Cool Yesterday at 3:22 pm

by Capton KIng Cool Yesterday at 3:18 pm

» Keep eye on Politics
by samaritan Yesterday at 2:48 pm

» LLUB Pattern reversed. Good buy @60, target +20%
by Teller Yesterday at 11:38 am

» Triple Bottom Reversal
by signals20 Yesterday at 10:31 am

by nuwanmja Yesterday at 9:07 am

» LLUB in RISK...Government opened a Plant in Muthurajawela...Becareful
by MarketWch Yesterday at 8:30 am

» USD Bond Issue 3 times over Subscribed.
by ranferdi Tue Jun 25, 2019 3:18 pm

by Cricketman Tue Jun 25, 2019 5:21 am

» AEL Recommendation @ 14...
by ddrperera Mon Jun 24, 2019 9:20 pm

» Cut your losses without sinking in it, that's the only way to win in a falling market.
by bhanu Sun Jun 23, 2019 7:38 pm

» Senthilverl Drives Sri Lanka Stock Market Turnover to hit Rs.2 billion
by samaritan Sun Jun 23, 2019 10:57 am

» Dockyard can go beyond 60/-
by hammurabi Sun Jun 23, 2019 10:53 am

» lOFC definitely will hit 6/-
by BANDB Sat Jun 22, 2019 8:31 am

» Why should we elect Naganada our next president
by Yahapalanaya Sat Jun 22, 2019 4:56 am

» SAMP Oversubscribed?
by Agape Fri Jun 21, 2019 4:52 pm

by Aruna Chandana Fri Jun 21, 2019 1:26 pm

» NEXT RUN People's leasing and Finance WAIT AND WATCH ENJOY RIDE..
by ddrperera Fri Jun 21, 2019 12:04 pm

» SME M&A opportunity
by Fri Jun 21, 2019 11:41 am

» CIND , 10% guaranteed return
by Teller Fri Jun 21, 2019 2:46 am

» Look PAP Amazing company
by Teller Fri Jun 21, 2019 2:44 am

» Bottom of market
by Teller Thu Jun 20, 2019 10:52 pm

» Triple Top Reversal pattern
by Teller Thu Jun 20, 2019 9:16 pm

by mahasona2 Thu Jun 20, 2019 1:00 pm

» Why AAIC Should trade above RS.50/-
by wisdom79 Thu Jun 20, 2019 12:38 pm

by Nuwan Samarawickrama Thu Jun 20, 2019 10:33 am

» Aluf will be better
by wisdom79 Thu Jun 20, 2019 8:50 am

» Stop promoting garbage. Don’t get deceived.
by wisdom79 Thu Jun 20, 2019 8:46 am

» RICH is not bad @ 9/-
by Teller Thu Jun 20, 2019 3:18 am

» BFN බොරු සෙලින් දාලා කොහොම හරි 11 වගේ ගානට 500000 එකතු කරගන්න කියලා අර 14 ට ලක්ශයක් සෙලින් දැම්මේ මේ ටේලර් මහත්තයාම තමයි
by Teller Thu Jun 20, 2019 3:16 am

» Be careful with HVA and LITE
by Teller Thu Jun 20, 2019 3:11 am

» WATA future looks good
by Teller Wed Jun 19, 2019 10:00 pm

» If i am the EPF buyer,I will go for PLC
by Teller Wed Jun 19, 2019 9:59 pm

by Teller Wed Jun 19, 2019 9:04 am

» Why we should buy AEL.N0000…?
by Miss-Sangeetha Wed Jun 19, 2019 7:45 am

» The Curse Of AEL
by Yahapalanaya Tue Jun 18, 2019 11:06 pm

» 8 Finance companaies to be closed very soon
by samaritan Tue Jun 18, 2019 8:52 pm

» Copreus (Pvt) Ltd - Need some Information
by Copreus Tue Jun 18, 2019 12:44 pm

» BALA can come down to 9/-
by Teller Tue Jun 18, 2019 12:27 am

» MARKET UP......BUT BFL....GRAN....TAFL......
by Trader321 Mon Jun 17, 2019 4:31 pm

You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market Talk » So how’s that long beta strategy working for you?

So how’s that long beta strategy working for you?

Go down  Message [Page 1 of 1]


Stockbrokers enjoy a monopoly on share trading here (in Colombo), so why are they behaving like investors owe them a living during this downturn

By Shamindra Kulamannage

During the market bubble easy money attracted investors to the business of running a stock brokerage. Some licensees adapted their brokerages to serve the volumes generated by retail investors who in their frenzy accounted for as much as 85% of market turnover. Many stockbrokers, who allowed clients to buy ridiculously priced shares were either ignorant, misunderstanding their role and obligations, or overcome with glee at how easy it was to make money, ignored the obvious issues.

After the bubble they perpetuated burst and pickings became thinner; many grumble about the number of stockbrokers serving a market with the turnover levels that Colombo’s listed stocks generate. Some even blame the suicidal pumping and dumping of shares as a necessary outcome of the regulator, the SEC, having awarded so many broker licenses leaving them no other avenue but to look the other way in the face of rampant market manipulation, to earn a living.

Clearly the regulator’s inability to ensure a level playing field for all market participants damaged the market’s credibility in the eyes of the very people whose savings stockbrokers were so keenly wooing. Worse still market manipulators escaped any sanction. This is all history. To contend that severe competition is somehow to blame for the blood bath is silly; it was wholly and entirely due to regulatory inaction in the face of rampant price manipulation, possibly the worst crisis the market has faced since the SECs creation.

Grumbling brokers, who sometimes behave like investors owe them a comfortable living, are suggesting that brokerage be increased, their numbers be reduced and funds collected for market development through the CSE monopoly, be used to subsidize their investments.

Stockbrokers are having a difficult time no doubt, some are downsizing and a round of layoffs may be around the corner. A problem of overcapacity is not a new phenomenon, in the economy or even for the stock broking industry. Just over a decade ago, when daily market turnover levels often fell below a few million rupees, brokers went through a similar rationalization. Many downsized and others sustained losses for years. But it takes a remarkably weak grasp of market fundamentals to complain that competition howsoever is a bad thing.

Being rather small, Sri Lanka’s stock market is governed by rules that limit the freedom of participants in the interest of efficient price discovery. These rules have bestowed, perhaps unintentionally, monopolies on stockbrokerages, the Colombo Stock Exchange and its electronic clearing system called CDS.

Brokers, despite the whining, have a monopoly on trading listed shares in Sri Lanka. Curiously there is no practical or legal avenue for a listed stock owner to bypass the market monopoly of the Colombo Stock Exchange to sell a share she or he owns or buy a share. CSE has the simple pleasant task of collecting the monopoly fees. Monopolies, even for the lauded aim of efficient price discovery, should generally be frowned upon. In many markets companies can have dual listings. But the more potent weapon is the Over the Counter (OTC) markets. Because trading of a listed stock is not the monopoly of a stock exchange, investment banks which have brokerage license, trade most of the shares outside the market. Why should they pay fees to an exchange which hasn’t rendered a service when, for instance, the brokerage have sourced both a buyer and seller for a transaction. So called Multilateral Trading Facilities (MTFs) in Europe have grabbed huge market share off more expensive, slow and arrogant stock exchanges. There are more sophisticated versions of MTFs called Dark Pools run by investment banks which don’t disclose trading volumes & liquidity and transactions are anonymous. This is price discovery at its purest.

Clearly allowing a freer market here would bankrupt the CSE and floor the regulator who is struggling to prosecute an unsophisticated bunch of manipulators despite having a world class surveillance system. If there is a lesson in this, it’s that markets are a far more powerful tool than they have been allowed to be.

Stockbrokers angling for limits on competition should understand that for efficient price discovery, it’s deregulation and not reregulation that’s going to work.

There is no easy solution for the overcapacity facing stockbrokers. There are however options although none as easy as sitting around collecting fees for doing nothing much. Firstly they have to figure if they are stock brokers for the high street or brokers for institutional investors. Advent of trading has made it easier for investors to directly limit the roles of brokers to a degree. Many were geared for the bull market or were anticipating long term share price volatility - In investment jargon a long beta strategy. Clearly since this is no longer viable they may have to reposition their businesses. Discount brokering will face serious challenges from internet trading.

Secondly the smarter brokers have already diversified their businesses to include some investment banking. Survival as a standalone stock brokerage will perhaps be unviable for much longer. Thirdly serious brokers can look to attract foreign institutional investors thereby growing the pie instead of competing for a bigger piece of a smaller pie. Fourthly they have to be up to stocking it out through lean economic times.

In many cases it is a combination of these and stamina that will keep the stock broker licensees in business. Of all people stockbrokers should understand how markets work.

(Courtesy: Echelon, a business magazine available for sale at Keells Supermarkets and bookshops. Echelon, published monthly, covers in-depth Sri Lanka’s most successful businesses, examining their winning strategies and profiling their leaders. It aims to set the benchmark for business reporting among magazines.)


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Brokers run at a loss? That's a big laugh..

What has happened to billions of money siphoned from retailers through manipulation of shares? It just vanished? These are with the brokers.. Plus all the commissions..

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum